Group says Reit rules ‘unworkable’

A group of real estate companies on Tuesday criticized the Aquino administration for drawing up impractical rules on the Real Estate Investment Trust law.

The Asia Pacific Real Estate Association, which promotes and represents the real estate sector on a regional basis, said in a statement the 40-percent minimum public float in the initial offering and increasing it to 67 percent on the third year could make Reit unsuccessful.

“The 33 percent [the minimum public offering proposed by real estate companies] is already high by international standards and the sliding scale proposed has been widely criticized as being unworkable and risks killing off the Reit idea in the Philippines,” Aprea said.

SM Prime Holdings Inc., the country’s largest shopping mall operator and developer, last week said it would no longer pursue a $500-million Reit offering because of the unfavorable rules.

Ayala Land Inc. said it remained committed to doing a Reit offering provided that the government would come up with “acceptable and mutually beneficial” rules.

“We remain hopeful a productive dialogue will continue with regulators to address the issue that surfaced and come up with an acceptable and mutually beneficial rule so we can proceed with the offering,” Ayala Land chief finance officer Jaime Ysmael said.

“At this point we still believe in the [Reit] product. But for now, we will continue to manage and operate malls as efficiently as possible so they remain in Reit-ready mode,” Ysmael added.

The Bureau of Internal Revenue last month issued rules regulating the establishment of Reits, stock corporations that pool investor funds to manage income-generating real estate assets. Among others, it required Reits to have a 40-percent minimum public float and increase it to 67 percent within three years after listing.

“The minimum public ownership condition, even if accepted by a sponsor, would result in very sub-optimal products being offered, to the detriment of investors. Either way, if insisted upon it will ensure that Reits won’t successfully get under way in the Philippines,” Peter Mitchell, chief executive of Aprea, said.

“To be sure, there are aspects of the new law that won’t be perfect, but the experience of other countries shows that it is best to get it under way and consider enhancements on the basis of performance,” he added.